First Advantage Corporation

Good morning, everyone.

My name is Beau, and I will be your conference operator today. I would like to welcome you to the First Advantage second quarter 2026 earnings conference call and webcast. Hosting the call today from First Advantage is Ms. Stephanie Gorman, Vice President of Investor Relations. At this time, all participants have been placed in listen-only mode to prevent any background noise. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star 1 on your telephone. If at any point your question has been addressed, you may remove yourself from the queue by pressing star 2. Lastly, if you should need any operator assistance today, please press star 0. It is now my pleasure to turn the call over to Ms. Stephanie Gorman. Please go ahead, ma'am.

Thank you, Bob. Good morning, everyone, and welcome to First Advantage's second quarter 2026 earnings conference call. In the investors section of our website, you will find an earnings press release and slide presentation to accompany today's discussion. This webcast is being recorded and will be available for replay on our investor relations website. Before we begin our prepared remarks, I would like to remind everyone that our discussion today will include forward-looking statements. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or applied in the forward-looking statements due to a variety of factors. These factors are discussed in more detail in our filings with the SEC, including our 2025 Form 10-K and our Form 10-Q for the second quarter of 2026 to be filed with the SEC. Such factors may be updated from time to time in our periodic filings with the SEC, and we do not undertake any obligation to update forward-looking statements. Throughout this conference call, we will also present and discuss non-GAAP financial measures, reconciliation of our non-GAAP financial measures to their most directly comparable GAAP financial measures to the extent available without unreasonable effort of parent-paid earnings, press release, and presentation, which are available on our investor relations website. I am joined on our call today by Scott Staples, our Chief Executive Officer, Joelle Smith, our President, and Steven Marks, our Chief Financial Officer. After our prepared remarks, we will take your questions. I will now hand the call over to Scott.

Thank you, Stephanie, and good morning, everyone. Thank you for joining our call. Today, we have four key messages. First, we delivered outstanding results in the second quarter with revenue growth of 15% year over year, adjusted EBITDA margins of 28.6, and adjusted diluted EPS growth of 30% year over year. meaningfully outperforming our previously communicated expectations. These results reflect the strength of our go-to-market performance, our state-of-the-art AI-driven proprietary technology platform, and the durability of our diverse enterprise customer base and vertical mix. Second, we are making strong progress on our SA5.0 growth strategies. Our focus on product innovation, platform capabilities, and go-to-market execution is translating into tangible results, including robust enterprise bookings, strong upsell and cross-sell activity, and continued customer adoption of our innovative products such as digital identity. As we expand the value we deliver to customers and further strengthen our capabilities, We believe we are well positioned to drive sustainable growth over the long term. Third, our strong cash flow generation continues to provide flexibility to execute our balanced and disciplined capital allocation strategy. We are constantly evaluating opportunities to create shareholder value and remain focused on deploying capital where it can have the greatest impact. De-leveraging remains a top priority and in the second quarter, we made a previously announced $25 million voluntary debt repayment followed by an additional upsized $45 million voluntary prepayment this week, subsequent to quarter end. This brings our cumulative debt repayment since closing the Sterling acquisition to more than $165 million. We also continue to repurchase shares opportunistically buying back nearly $19 million during the quarter with total repurchases through July 31st of $38 million or approximately 1.9% of total shares outstanding. And finally, we are raising our full year 2026 guidance across all metrics to reflect our strong first half performance, continuing go-to-market success, current labor market trends, and our confidence in our growth outlook for the remainder of the year.

Now, turning to slide five.

We delivered exceptional results in the second quarter with strong performance across revenue growth, adjusted EBITDA, adjusted EBITDA margin and adjusted diluted earnings per share. Our results in the quarter benefited from sustained momentum driven by our recent large contract wins and continued improvement in base revenue performance. reflecting our focus on controlling what we can control and executing consistently across our growth algorithm. At the same time, we are beginning to see encouraging signs of gradual improvement in the broader hiring market, which provided additional support to our results during the quarter. We believe the strengths of our business, including our enterprise customer focus, diverse vertical mix, global footprint and Balance across blue-collar and white-collar hiring with a strong go-to-market focus on high-volume enterprise hirers continue to provide stability and reinforce our confidence in delivering durable growth across a variety of macro environments. One of First Advantage's key differentiators is our position as a global HR tech and data platform company. Thank you for joining us today. Our customers trust us because of our deep domain expertise across verticals and a wide range of regulatory frameworks, including the Fair Credit Reporting Act, or FCRA. In a rapidly evolving environment, this combination of AI-driven innovation and regulatory risk management and compliance leadership is what enables First Advantage to deliver high quality, highly automated, and high volume screening globally at scale. Building on that point, we have spoken extensively about our strategy of applying AI to help our customers manage risk while preserving the speed, efficiency, and user experience they expect. At the same time, we are also benefiting from AI across our own operations, leveraging our years of investment in automation, machine learning, and AI. We have embedded these capabilities throughout our platform and proprietary data assets. Doing so has enabled us to strengthen our solutions such as smart hub AI and digital identity fraud mitigation products, improve operational efficiency, and support more scalable growth. A recent example is our shift from using third-party AI for the chat feature within our Click, Chat, Call customer care platform to a proprietary native AI chat experience that has been purposely built on our own infrastructure, trained by our own data, and tailored to our needs. This transition, enabled by the depth and expertise of our engineering teams, creates a smoother handoff between AI and live agents, reduces our reliance on external platforms, and allows us to deliver a better experience at a lower total cost. Across our operations, customer care, fulfillment, product development, and engineering teams, AI is helping us enhance the customer experience, increase productivity, and drive operating leverage, while further strengthening our competitive differentiations. Before turning the call over to Joelle, I would like to highlight a few recent First Advantage recognitions and milestones. First, in June, we celebrated the fifth anniversary of First Advantage's initial public offering. I'm extremely proud of what we have accomplished as a public company on behalf of our stakeholders. We have delivered growth and profitability successfully executed and integrated the transformational Sterling acquisition, innovated and led with best-in-class solutions, launched our FAA 5.0 strategy, and established long-term financial targets while making meaningful progress towards them. Second, we were added to the S&P Small Cap 600 Index on June 16th, a milestone that reflects our expanded scale, strong financial performance, and established track record as a public company. And third, we were ranked among Time's America's Best Companies 2026 as the number one background screening and identity verification company. We also placed in the top 25 nationwide in the professional services category and in the top three professional services companies ranked by financial performance. These recognitions reflect the excellence of our team as we continue competing and winning in our industry. With that, I will now turn the call over to Joelle, who will share more on our go-to-market execution, vertical performance, product innovation, and customer engagement.

Thank you, Scott, and good morning, everyone. This morning, I will provide an update on our go-to-market performance and the underlying dynamics behind our strong results this quarter. I'll start with the drivers of our robust 15% year-over-year Q2 revenue growth, which well exceeded our previously stated expectations and long-term growth algorithm target of 7% to 9%. Provide upsell, cross-sell, our new logo revenues continue to deliver robust growth, achieving 12.5% growth in the quarter. Performance was driven by the continued growth from the three large go-lives from the end of 2025 that we have discussed on previous calls, as well as the contribution from the many other enterprise deals we've won in prior reports. Overall, our sales engine continues to hum. In addition, base growth for the quarter came in exceptionally strong at 6.7%. We believe this reflects the breadth and scale of our business model. Underlying base trends continue to improve, and notably, we supported meaningfully higher than expected volumes from several customer initiatives during the quarter, which contributed roughly half of the quarter's base growth. It's an excellent example of how our scale and AI-enabled platform enable us to absorb and deliver periodic volume surges from time to time across multiple industry verticals while maintaining top speed and service. Even without this benefit, our overall base growth this quarter was particularly strong, at the high end to above our long-term growth algorithm target. Now, switching gears to our continued go-to-market success. Our sales teams delivered an impressive 20 enterprise bookings in Q2. This is up from 17 in Q1, with each deal having an expected annual contract value of at least $500,000. These wins Combined with the continued strength and expansion in our late-stage pipeline, particularly within new logo opportunities, reinforce our confidence in the durability of our new logo and upsell-prostell growth and support our positive outlook for the balance of the year. Customer engagement also remains strong, with retention of 96%, which is in line with our long-term model. This represents another quarter of excellent performance and demonstrates the success of our high-caliber go-to-market team and the market impact of our continued investment in our state-of-the-art process. Now, looking at our verticals on slide 8. Overall, we continue to hear a neutral to positive tone from our enterprise customers who generally expect current hiring activity to continue through the balance of the year. The diversity of our customer base continues to be a key differentiator, supporting the robust momentum we saw across many of our largest verticals in Q2, despite some of the mixed headlines around broader employment you may have read. Transportation and logistics, as well as retail and e-commerce, all benefited from a combination of sustained base volume, healthy consumer activity supporting labor demand, and some workforce initiatives driving higher volumes. Industrials and manufacturing had also demonstrated notable growth, as aerospace and defense customers expanded capacity and increased hiring. Friends in general, staffing also remains positive, particularly within blue-collar staffing, indicative of the overall improvement we are seeing in the hiring environment, which is manifesting within our base momentum. Our remaining verticals showed minimal declines over flat, including health care, where strong new upsell and cross-sell activity offset some remaining base softness as uncertainty of federal health care funding remains. Turning to our international business. Q2 revenues were up 2.4% year-over-year. Our global scale and consistent delivery across regions uniquely position us to win, particularly as U.S. and European multinationals continue to centralize and globalize their hiring process. We continue to be a partner of choice for managing their expanded screening needs across geographies, which supports our growth and reinforces our confidence in the long-term international opportunity. At the same time, we have seen softer volumes emerge in some of the markets, such as India. as global conflicts have persisted longer than many initially expected and are driving impacts including higher fuel prices and broader economic destruction. I'm aware much of this positive momentum across our business is the strength of our product portfolio, which continues to differentiate us in the market. As identity fraud continues to rise in both frequency and sophistication, Customers are increasingly turning to fraud mitigation solutions like our digital identity products to help them mitigate risk and maintain trust throughout the screening and verification process. This trend is underscored by a recent Equifax survey of HR professionals. which found that nearly three-quarters of respondents encountered challenges with fabricated or misreading candidate information. Digital identity continues to be the tip of the spear in our go-to-market strategy. As we have discussed, we believe it is not a feature, but an essential solution ahead of the screening process, and customers continue to ask about it with increasing frequency as they navigate the challenging world they operate in. While digital identity still represents a modest portion of overall contract value, it remains a key differentiator and decision driver and is standard in most of the deals we quote. In Q2, adoption continues to build with implementation trends in mind with last quarter, reinforcing the importance of this product line. Digital identity is just one example of how our product innovation strategy is translating into differentiated solutions for customers and strengthening our competitive position. There are several additional promising initiatives in the works. with focus areas such as new verifications products and additional offerings leveraging our smart hub AI routing technology. We believe initiatives like these help drive continued product leadership, support our go-to-market success, and optimize our fulfillment cost structure. We look forward to providing further updates as these products come to market. Beyond our innovation efforts, staying closely connected to our customers remains a top priority, and our global Collaborate User Conferences continue to be a powerful platform for engagement worldwide. Following our successful U.S. Collaborate User Conference in April, we held regional events in Singapore in June With additional events planned in India, Hong Kong, and Australia later this fall. Across these conferences, we have connected with hundreds of customers and prospects, deepening relationships, gathering valuable market insight, and reinforcing our confidence in the opportunities ahead. With that, I will now turn the call over to Stephen.

Thank you, Joelle, and good morning, everyone. I'll start with second quarter results on slide 10. Our second quarter revenues were up an impressive 15% year-over-year, coming in at $449 million, marking our fifth consecutive quarter of positive year-over-year revenue growth. As Joelle discussed, the underlying business continued to perform very well in Q2. Excluding the benefits debate from Joelle's mentioned customer initiatives, we estimate U2 total revenue growth is still a very robust 11% to 12% above both our previously communicated expectations and long-term growth algorithm target range. Adjusted EBITDA for the second quarter was $128.5 million, up 13% year-over-year. Our adjusted EBITDA margin of 28.6% came in above our stated expectations and reflects sequential quarterly improvement of 130 basis points driven by strong operating leverage. Notably, we efficiently fulfilled the incremental due to volume within our existing cost structure without having to make structural changes to our operating model. Margin benefited from our strong execution on synergies and cost disciplines while flexing to adapt to the product mix changes as a result of the large deals we have discussed previously, particularly as the positive base trends have provided more broad base revenue distribution compared to what we saw in late 2025. Our adjusted diluted EPS was 35 cents per share, a 30% increase year over year. Our per share earnings growth was supported by our overall outperformance in the quarter, share buyback, and synergy realization. Earnings growth also benefited from our disciplined expense and capital management combined with lower interest expense as a result of our debt repricing and voluntary debt repayment. We continue to action cost synergies from our Sterling acquisitions, reflecting our disciplined execution and strong integration progress. We remain on track to achieve our synergy goal within two years post-closing. And as of quarter end, we had actioned $63 million in run rate acquisition synergies, moving closer to our total synergy goal of $65 to $80 million. Overall, our outstanding Q2 results were enabled by our go-to-market momentum and execution, combined with our ability to flex to meet our customers' demands. Now turning to cash flow, net leverage, and capital allocation on slide 11. During the quarter, we generated operating cash flows of $73.6 million, a substantial increase of $36.3 million, or 97% on a year-over-year basis. This impressive performance was driven by our revenue outperformance in the quarter, the larger scale of our business, our overall focus on cash flow, and the curtailment of acquisition-related outflows. Our cash balance as of June 30th, 2026 was $238 million. We are constantly evaluating our capital allocation options for driving shareholder value creation, remaining focused on opportunistic capital deployment across both deleveraging and share repurchasing. Achieving our target net leverage level of less than three times remains a top priority, and the pace of our debt paydown reflects that commitment. In line with this, just this week, we prepaid $45 million of debt, well exceeding the voluntary prepayments we've made each quarter for the last year. This is in addition to the previously announced $25 million prepayments we made on May 6th and brings our total debt repayments to $165.5 million since closing on the Sterling acquisition. As a result, our synergized adjusted EBITDA net leverage ratio at quarter end was 3.7 times and represents a 0.7 times decrease from when we closed the Sterling acquisition. Additionally, during the quarter, We repurchased $18.7 million of our shares through the $100 million share purchase authorization that we announced in February. Our repurchases through the end of July totaled approximately $38 million, with an average purchase price of $11.78 per share. This represents 3.2 million shares in total, or approximately 1.9% of total shares outstanding. $61.8 million remains on our authorization. Going forward, we will continue to analyze our capital allocation approach to ensure we are opportunistically actioning a plan that maximizes ROI and shareholder value. Moving to slide 12 in our 2026 guidance. Today we are raising our previously announced full-year guidance, supported by our exceptional performance in the first half of the year and our outlook for stability in the hiring market for the remainder of the year. We now expect 2026 total revenues in the range of $1.67 billion to $1.71 billion. adjusted EBITDA of $472 million to $486 million, adjusted net income of $214 million to $225 million, and adjusted diluted EPS of $1.23 to $1.29 per share. At the midpoint, this represents approximately 7% year-over-year revenue growth, 9% year-over-year adjusted EBITDA growth, and 21% year-over-year adjusted diluted EPS growth. Our updated and tightened guidance range reflects a balanced posture on our short-term outlook that incorporates the healthy state of our underlying demand trends as well as the ongoing geopolitical and macro uncertainty. As a result, the continuation of current trends would support performance above the midpoint of our range. However, consistent with our historical approach towards guidance, we believe it is prudent to account for a broader range of outcomes given the factors outside of our control. As we think about the second half of the year, please remember that our 2026 growth rates are being measured against an exceptionally strong second half of 2025, during which we grew a notable 12% year-over-year in Q4 2025. Notably, in Q3 of this year, we begin to lap the 12-month anniversaries of the large 2025 go-lives we have discussed previously, and by Q4, those wins will be fully annualized. As we progress through the second half of the year, we expect that this will result in moderating growth rates compared to the exceptional start for this year. Zooming out, while growth rates may fluctuate from quarter to quarter, we expect to deliver full-year results above our original expectations and in line with our long-term growth algorithm. Looking specifically at Q3, we saw revenue momentum continuing from Q2 into July, and we expect base to be slightly positive for the full quarter. Taken together with the new logo and upsell-cross-sell trends we've discussed, we expect total revenue growth rates to Q3 in the mid-to-high single digits, consistent with the expectations we shared last quarter. Looking ahead at Q4, we expect base to be neutral with our overall base momentum continuing into Q4, but partially offset by prior year's Q4 new logo and upsell cross-sell revenue getting more evenly distributed across 2026, a dynamic we've been discussing with you for several quarters. For Q4, we also have a more modest level of expected new logo and upsell-cross-sell contribution models as we comp against the strong Q4 2025 17% growth and navigate some instances of recent wind implementations now extending into early 2027. As a result, we expect Q4 total revenue growth rate in the low to mid single digits. Turning to adjusted EBITDA, overall, we expect adjusted EBITDA margins to remain largely consistent with Q2 for the remainder of the year. And similarly, for adjusted diluted EPS, we expect meaningful year-over-year expansion, increasing versus prior year to the low to mid $0.30 range in both Q3 and Q4. Having walked through our updated 2026 guidance, I want to close on slide 13. This slide puts our 2026 guidance in the context of our longer-term growth trend in adjusted diluted EPS. The growth implied by our updated 2026 guidance midpoint is consistent with our track record of adjusted diluted EPS growth of 20% or more since 2024. This is also consistent with the longer-term adjusted diluted EPS growth rate implied by the midpoint of our 2028 target. With that, let me turn it back to Scott for closing remarks before we open the line to your questions.

Thank you, Steven. In closing, Q2 was our strongest quarter yet, and we expect our solid momentum to continue in the second half of 2026. We are focused on winning by providing best-in-class differentiated solutions for our customers. We remain confident in our ability to deliver consistent financial performance, and we are progressing well toward the 2028 financial targets we established during our Investor Day in May 2025. Thank you to the entire First Advantage team for the work you do to support our customers each day. With that, we will open the line for questions.

Thank you, Mr. Staples. Ladies and gentlemen, at this time, we will begin the question and answer session. If you do have a question, please press star 1 on your telephone. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. To get to as many questions as possible, we ask that you please lend yourself to one question and one follow-up. We'll go first this morning to Shlomo Rosenbaum with Stiefel.

Hi, thank you very much for taking my questions. I just want to make sure first that I'm understanding the tone on the overall environment. It sounds like the tone is better from your clients and you're seeing better growth. And, you know, it sounds like it's more broad-based. I want to make sure I'm understanding that right and then I also want to ask about the detail in those customer initiatives where it's something that was a pull forward or it was an episodic project that kind of came out of the blue. Just trying to understand what that is and maybe you could give us the nature of it. Is that something that's indicative of an improving environment or is it just something else?

Yeah, thanks, Shlomo. I'll take the first part of your question, and then I'll have Joelle answer the second part of your question. So basically, your first part of the question is on the macro. You know, what are we hearing? What are we seeing? Obviously, you know, 6.7% growth in the base, you know, is great. Slightly unexpected, but obviously we love it. I think there's a couple things going on. One, if you just look at job data, you're seeing a lot of stabilization. You're seeing hires and quits. Absolutely flat for the last six months, and that's fine. Job openings continue to be really strong. Pre-pandemic, it was about 7 million, and now you're looking at 7.4 million. That's all really good for a base and for our business. Unemployment remains steady at 4.2%, and job openings to unemployment is also favorable. So I think just pure labor statistics, you're seeing good numbers. And also, over the last couple of weeks, there's just been some really great articles in Wall Street Journal and other places around what's really going on in the labor market. And I think the impact of AI was highly overblown. And I think we're seeing, as you used, I'll use your exact term, we are seeing broad-based improvements.

And I think it would go back to what we said over the last couple quarters.

You know, we are continuing to hear, I would say, neutral to positive. The same comments I've given for the last two quarters. Neutral to positive projections on hiring from our customers. And, you know, we talk to our customers all the time. So we are in front of literally hundreds and hundreds of our large customers and hearing a very consistent tone. And I think when you say broad-based, it's true geographically and it's also true vertical-wise. If you look at our vertical performance, we got really nice growth out of retail and e-com, transportation and logistics, industrial, general staffing, especially the blue-collar staffing. The blue-collar staffers are doing extremely well. But all the other verticals were basically flat or just barely negative. So we're not getting these wide swings in verticals. and I think the only place geographically we're seeing some slowdown is actually in India and that's a direct reflection of the Iran war. Oil prices, gas prices are definitely affecting India economy and our customers in India but as you know it's not a huge piece of our business. So we're definitely seeing a combination of vertical, broad-based vertical, broad-based geographic You know, really nice stabilization and obviously even improvement in base. I'll turn it over to Joelle to talk about the customers.

Awesome. Thanks, Scott. Hey, Shlomo. Yeah, so the customer initiatives that we saw, which is roughly half of the base growth that was created, it created elevating screening activity. And these were really enterprise-wide labor reshaping programs. These programs created churn in their labor force, and labor churn is always good for our business. We're also seeing a continuation of job stacking. which, as a reminder, is someone who's working two or more jobs at the same time. And we're seeing this across verticals, which is also good for our business. So these are the things that we've really kind of seen from customers. They're doing a lot of this work because they're large enterprises, and large enterprises do these types of changes from time to time.

Okay, so it was not something you were expecting. It was kind of an episodic thing that just came up in the quarter, is the way to understand, just to clarify the customer initiatives.

Yeah, it did accelerate through Q2. We do anticipate it continuing into Q3, but probably will normalize into Q4. But these programs do happen, and it wasn't just one group. It definitely happened across transportation, retail, and e-commerce.

Okay, great. Just to sneak in one other thing, can you just talk a little bit more about what's going on with package density, how that might be helping the growth, and how much of a factor is digital ID in terms of helping to improve the cross-sell and up-sell? I don't know if you have metrics for that, and then I'll pass it off to someone else.

I'll take the package density and then I'll again flip it back to Joelle to talk about digital identity and sort of our tip of spear go-to-market approach with digital identity. Package density continues to be strong. If you look at the numbers, I'll give you sort of the color on it in a second, but if you look even back and many more. Thank you for having me. There's just, as we've talked about before, AI, what we call bad AI, is enabling fraudsters and basically all levels of fraud to enter into the recruiting process. and we're fighting that bad AI with good AI, but that's just a piece of it. It's also, can you go deeper on county searches, state searches, federal? We're continuously hearing this from our customers and this is a great thing for our business. It's driving a lot of our cross-sell growth for many years now and we don't see an end to it. The world, again, keeps getting more and more challenged, not less and less challenged, which is really good for our business. I'll flip it over to Joelle now to talk about digital ID.

Yeah, absolutely. We are definitely seeing a lot of activity around digital ID for the same reasons that Scott talked about with regards to just kind of the state of the world that we live in. We are seeing a significant increase in fraud, especially in the hiring market, in workforce, within the interview stage, the hiring stage, and then even day one. So the digital identity offerings that we have that are embedded into our screening process are creating a lot of opportunity for us, which is naturally just making the ACV and the size of the deal larger. So that's also contributing to the package density increase that we're seeing. My stand in the game with regards to how we are going to market, as Scott said, it really is the tip of the spear and it's opening up all kinds of doors and conversations with people because it's reaching an elevated level within our customers. You know, it's no longer just an HR conversation. The conversation is moving up to the other CC and even board levels because of the threat. and some of these bad actors and the risk that it creates within these enterprise organizations. So we're definitely seeing a larger cash rate with the digital identity and it's obviously driving larger deal sizes as well.

Thank you. Thank you. Thank you. Thank you. We'll go next now to Ashish Sabhadra with RBC Capital Markets.

Thanks for taking my question. Congrats on such a strong result. Maybe just a quick follow-up on the base growth. You mentioned the customer initiative, but the other half seems to be pretty broad-based across multiple industries and seems like that momentum continued in July. So should we expect that momentum going forward based on what you've seen so far and your conversations with your customers? Thanks.

Steve, do you want to add?

Yeah, it's a good question. I think certainly it was broad-based growth in the second quarter, you know, retail, e-com, you know, transportation logistics. But we also saw industrials and defense and those types of sectors that Scott mentioned before, staffing, and certainly on the blue collar doing really well. You know, July is obviously a good start, but there's still two more months in the quarter and a little bit of unknown. But we certainly think Bates will be positive for the quarter, slightly positive, that is. Before we were saying zero to negative two, we're probably on the positive side of those numbers, which is a healthy step change in progression. And I think that reflects the customer sentiment and the volumes that was made. So obviously, we've got a range of outcomes. And as Scott mentioned, the sustained kind of conflict in Iran and the Middle East could drag a little bit on consumer confidence and fuel prices. But overall, we're pretty confident in the base. And we like where the momentum started the quarter out in July.

That's great color. And just maybe on the margin front, obviously really great progress on the cost takeout initiative. You mentioned second half margins more in line with the source. As you think about the puts and takes going forward, can you highlight some of the investments that may be weighing on the margins? Thanks.

Yeah, I think a couple things there, Ashish. I mean, A, you know, we're somewhat expecting our vertical mix to stay constant for the rest of the year, which means you're not going to see that, you know, large fluctuation in gross margins that we saw last year where we kind of shifted a little bit heavier towards some of the transportation-type verticals where you just have a different mix of services. So that's why you're seeing that consistency there. And then, you know, as I mentioned on the prepared remarks, you know, we're making very good progress on the centerpiece. It's still a little back of the year weighted, so you'll see more of that progression. You know, if you look in the slide deck, you know, we've actioned $63 million, but we've only realized $51 million. So there's still, you know, $12 million that's going to flow through, and a lot more of that is weighted towards You know, the very end of the year or early next year when you kind of just look at the pacing and flowing of that. So, you know, we're still very confident about, you know, overall getting leverage and accretion out of growth margins. You know, we are making some targeted reinvestments in the business on sales and product, as we've talked about with you guys over the years. There's a great investment for us, and they certainly return well. Overall, we think margins will be very consistent through the end of the year, which is still good year-on-year positive momentum, which we like in the model.

Ashish, I'll add one more thing. Yeah, I'll add one more thing. If you remember in last quarter's earnings call, we said that we would put a ribbon and bow on the synergy efforts and integration efforts by December 31st of this year, and we are still on target to do that. So it doesn't mean we will fully realize everything by December 31st. But we will fully action everything by December 31st. So going into 2027, we will be done with all the integration and synergies for the Sterling acquisition, which is almost now approaching a two-year anniversary. We will get some of the realization of those synergies obviously flowing into 2027, but we are definitely on target to wrapping it up December 31st.

And congrats on such quality business. Thank you.

Thanks. Thank you. We'll go next now to Andrew Nicholas with William Blair.

Good morning. I appreciate you taking my questions. First, I wanted to just kind of ask on share gains. Obviously, upsell, cross-sell, new logos all remain pretty impressive.

Just curious from a vertical perspective or even a geographic perspective, if there are specific kind of markets where

Your momentum is pronounced and maybe any thoughts on why that would be if that's the case.

Andrew, we're seeing great momentum anywhere you can classify something, regardless of vertical, can classify it as high volume hiring. There's still a tremendous demand for blue collar workers, even white collar workers where there's high turnover. It's hard for us to actually break down what's a corporate job versus some other job. But we know what's a trucker, what's a warehouse worker, what's a store clerk worker. And those jobs are just still in tremendous demand. So it actually lends to transportation. It lends to retail, e-commerce. Certainly lends to we're seeing great growth out of the healthcare staffers. We're seeing great growth out of blue-collar staffers and even hospitality, things like that where it's high volume. But even within things like, you know, Industrials and Manufacturing. There's tremendous growth in aerospace and defense right now. So our industrials business is doing extremely well. And you would obviously expect that given the results of the industrial companies and we're benefiting from that as well. But even some of our financial services companies and things like that, do have high-volume hiring components of them. And so we're getting just really nice growth across a lot of our large verticals. And the key is high-volume hiring. And that's our focus, as you know, for going on almost 10 years now. Our focus vertically has been on the high-volume hires and the enterprise. And I think we're reaping the benefits of that. Got it, thank you.

And then for my follow-up, just a quick one on margins. Are there any kind of nuances to the custom initiatives from a margin perspective? Are there higher or lower pass-throughs? Are there bulk discounts? Anything for us to thinking about in terms of that impact on Q2 and it sounds like Q3 as well.

Andrew, now, I mean, those initiatives are really just running more volume through their existing programs. I think the only real growth margin impact would be if it changes kind of the vertical chemistry a little bit. And if there's more volume, obviously, from a vertical that's, you know, more transportation-oriented or health care-oriented, it could be able to move the needle a little bit. But overall, they're running, you know, core packages at normal terms and conditions.

Got it. Thank you. Thank you. We'll go next now to Andrew Steinerman of J.P. Morgan.

Yeah. Hey, guys. I just wanted to unpack this customer initiatives call out again. You know, maybe we can sort of cut through and, you know, I recognize there's certain things you can say about what your customer is doing and certain things you can't say. You know, the term enterprise reshaping was used. In plain English, What did your customers do? What segment was it in? You know, because as we look at the beat, you know, the beat and the dive increase, obviously there's a little gap there. I was trying to understand that, giving you some positives, and then I have a follow-up on capital allocation.

Yeah. Hi, Alex. So... Think of it this way. First of all, it was multiple customers, and it was obviously great news. As Joelle mentioned, about half of the base increase in the quarter was attributed to these customers basically doing large-scale, whether it be re-screening, or hiring. So it was a combination of both. We had some large customers across multiple verticals launch some large rescreening initiatives. And again, that goes back to the fact that we live in a challenging world and customers are very worried about What potentially existing employees have done since they've been hired. So doing some large re-screening on large employee bases is a great revenue lift for us. It doesn't mean they'll do it again next year. They may do it two years from now, but we're starting to see re-screening become a little bit more of a factor. We're starting to see monitoring become a little bit more of a factor. Again, it showcases the world that we're living in. and we also had some large customers doing some restructuring. So they were consolidating divisions or they were changing things and that led to actually more turnover and more hiring. So again, it's really hard to say it was one or two things. It was a little bit across multiple customers, across multiple industries, but obviously we're happy to take the business

Understood. Thank you for that. Then maybe peeling back the envelope on capital allocation, this is one for Steven. You mentioned you guys are being very thoughtful around capital allocation going forward from here. Obviously, your stock price has done well. Obviously, you'd be leveraged in a pretty orderly way. Are you planning to Did it change at all how you're thinking about capital allocation this juncture? Did the priorities change at all? Is there potential for more organic reinvestment, inorganic investment, thinking about other ways to return capital to shareholders? It's worked up a bit when you said that agenda to dig in on the capital allocation thoughts that you guys are having.

Yeah, no, Alex, it's a good question. It's not really a... Change of posture at all. I think we've been saying since we kind of announced the share repurchase program back in February that our plan was always to be opportunistic. We certainly were pleased with the upward momentum in the stock price and obviously still bought back some shares during the quarter and still, you know, Feel that there may be an option there, but certainly, as you can tell by the upside debt pay down we made this week, deleveraging is certainly a top priority and remains the top priority. You know, we've always organically invested in the business, and there's no step change in what our plans are there. You know, we'll continue to put some money behind the product and sales and marketing and making sure that we're successful and, you know, continuing, you know, the momentum that we have. So I think, you know, ultimately, you know, we'll keep our eyes on the market. It's obviously very fluid these days and put our capitals where we believe the highest ROI for our shareholders are. You know, given where interest rates are heading and things like that, you know, it could change just the composition from Q1 to Q2 and Q3 may look a little more different. But certainly we feel good about where cash flow is, upsize the debt repayment, and that will remain a priority in terms of getting due leveraging down to have the right interest for our shareholders.

Thank you. We'll go next now to Jeff Silver with BMO Capital Markets.

Thank you so much. I wanted to go back to the updated guidance for the year. Maybe I'm misreading this a bit, but it seems to be that now the second half may be a little bit more tempered specifically at the top line compared to what you might have expected beforehand.

I don't know if that's correct or not.

Was there any front running maybe in the second quarter some of these initiatives you thought might have come in the back half of the year or came in the second quarter?

Yeah, Jeff, good question. And no, none of it was a pull forward per se. I think we have a little bit maybe a touch more conservatism towards the second half, you know, the prolonged, you know, geopolitical uncertainty, you know, and how that impacts consumer confidence. You know, our retail and transportation segments, we had an exceptional peak, you know, performance last year. We have to comp against that. You know, as this conflict drags on, as fuel price prices remain higher for longer and kind of drain the American consumer, we want to make sure that we can account for that range of outcomes in our base volumes and how we comp against last year. So I think that's the primary driver for, I would say, just a touch of conservatism, maybe more than was there, you know, a quarter or two ago. But Zoom out, we've raised the bottom end of guidance by $45 million, raised the top end as well. I feel really good about where the year is heading.

Okay, that's great. Joelle, in your remarks when you were talking about internationally, you talked about some softer volume trends. Can we just get a little bit more color deck of what's going on there?

Sure, yeah. So that was really focused on India, per se, and it's not really kind of across the broader international numbers. We're actually seeing some good growth in the other regions in the NAPAC. So India is really the one that's being heavily impacted, and that's mostly with the Iran conflict, fuel prices, and just some of the general macro challenges that that region is seeing. We're not losing any large customers. There's not a major change. It's just really about kind of the macro effect with India.

Okay. Can you just remind us how large India is as a relative percentage of revenues?

Overall, international these days, the international is roughly 12%. India is probably in the neighborhood of a quarter of that. Do not call company. It's not a big piece of the picture.

All right, thanks for clarifying that.

Thank you. We'll go next now to Mananee Patnaik at Barclays.

Hi, good morning. This is Ronan Kennedy. I'm from Manan. Thank you for taking our questions. Combined new logo upsell, cross-sell contribution remains quite strong. I think driven in part by the three large go-lives from late 25 and other enterprise wins. As these become fully annualized in 2H26, how much of the growth rate is being supported by implementations reaching run rate versus your underlying sales productivity from new bookings, pipeline, ongoing share gains? So trying to understand the repeatable sales productivity versus run rate impact and those dynamics, please.

I'll take that. So, you know, As Joelle said in her prepared remarks, you know, the sales engine is humming. There's no question about it. You are right in the fact that we had some really nice wins in 2025. So I think the only thing we're saying here is that that creates some large grow over challenges. It doesn't mean the sales engine is not performing well. In fact, it's performing the best it's probably ever performed. The number of go-lives that we have lined up for Q3 is an exceptional number. We're not prepared to give that number out. But we have a lot of deals that have been won that will be going live in Q3. But I think the only thing that we're saying here is that 2025 was so exceptional, especially with those large wins. It just makes it complicated. A little bit more challenging. And, you know, we still expect to have really good performance in Q3 and Q4. It's just comps that we're talking about. And, again, sales engine continues to hum. Goal lives, you know, for Q3 look amazing. And the pipeline is literally the largest it's ever been, especially with the late stage pipeline. Those are all very promising signs. So again, probably just more of a comp issue.

Got it. Thank you. And then from a margin standpoint, I think Q2 demonstrated the ability to absorb that elevated customer volumes within the existing operating structure. Did you learn anything about the normalized incremental margin profile of the business when revenue growth accelerates? And as we move into 27 with integration winding down, can you remind us how we should think about margin expansion from say package density, digital ID, fulfillment productivity, other initiatives that you're doing and that mix.

Yeah, I mean, I think, you know, we've talked about this a lot over the years, you know, how scalable our fulfillment structure is and how good our platform is of being able to account for volume increases and decreases and scale up and down. And I think we certainly put that to the test in Q2, and I think, you know, we're incredibly proud of how the platform responded, how our teams responded. And, you know, it's not like we had to go out there and hire a ton of people to handle the volume. As I mentioned in the paramark, we were able to absorb it within the cost structure. probably caused a little stress on some of our departments, but overall performed incredibly well. So we're really excited about that. And I think you're right. We've talked about this too over time. Some of the newer products that we've talked about, digital identity and monitoring, do have a slightly different data cost model to them. So it does generate net higher unit profitability percentages. As we get more momentum there, that'll become a part of the story. I think today, obviously, we're mainly focused on getting those implemented and getting those customers live on those new tools. And then we'll talk about the upside to net dollar profitability down the road.

Thank you. Appreciate it. We'll go next now to Stephanie Moore of Jefferies.

Hi, good morning. Thank you. I wanted to maybe touch a little bit on some of the large contract wins that you've announced. Let me just talk a little bit about what you view the TAM to be within that market, your overall share in that market as well. And then I think high level, what are you hearing from your clients as the key reason why they're choosing you to perform these services? Thanks.

Hey, Stephanie. So there's a lot there, so I'll touch on a few things. And if I miss anything, Joelle, please jump in. If you look at our investor date deck from May of 2025, we spelled out the pretty significant TAM within our core business, but we also spell out the additional TAM that digital identity and identity fraud represents, which is another $10 billion on top of our TAM. So the opportunity in the TAM is quite large. We still maintain about a 25% market share in the core business space, and that obviously is an encouraging thing for us because of all the sales momentum we have and our ability to take market share. and even to add a share of wallet within existing customers has been a big driver of growth for us. So I think some of the key drivers of our success, a lot of it is the verticalization. We've always said that verticalization is the secret sauce in this business and it continues to be. And why is verticalization so important? It's because every industry is different. Especially in our regulated industries such as financial services, healthcare, transportation, I think a lot of people don't understand how all these transportation and logistics companies need to adhere to Department of Transportation rules and regulations and work great at it. And a lot of it, the compliance is built, is hard-coded into our platform. So that when a large transportation company is hiring a driver, they can feel safe and secure that First Advantage is doing everything possible to protect them. So I think verticalization is one. The proprietary data is also a big one. We have a billion proprietary records. We have 135 million in our verified database, which is prior work and education backgrounds. And we have 900 million in our national criminal record file, which is prior criminal data. and I think that gives us an advantage, the fact that we leverage our own proprietary data on a very state-of-the-art user experience. If you recall, over the last year plus, we've been launching a new candidate experience and we're getting rave reviews on the user experience so customers are very happy with our state-of-the-art tech platform. They're very happy with our proprietary data. and I think another thing that's been driving a lot of growth and we talked about it earlier around package density you know with the whole world being a very challenging environment that really helps us you know sell more and we've got you know as you know the first advantage story you know we've been leading the charge in automation so we're using you know Automation, APIs, AI to help us get data, make a faster interpretation of data, get results back to our customers with faster times. And that's also really important. So all the investments we've literally made over the last 10 years are making a significant difference in our selling ability. And then the last thing I'll add is that there's a pretty strong trend and this started maybe 18 months ago, maybe two years ago in the industry around vendor consolidation. and Global Expansion. A lot of these multinationals, these big US and European corporations who do business all over the world have been going under vendor consolidation programs and also looking for vendors like First Advantage who can do global screening. There's very few of us and that gives us a significant competitive advantage in the market. If you look at our upsell, cross-sell, the biggest driver of our upsell, cross-sell is definitely package density. And the second biggest driver is global expansion. We have just done really well in winning more business, more share of wallet within existing customers.

So, for example, if we have their U.S. business or their media business, we're now winning their APAC business.

We're winning their business in Australia. We're winning their business in India or wherever it might be. That's been a big driver of upsell, cross-sell.

Thank you. We'll go next now to Scott Wurzel of Wolf Research.

Hi. Good morning, guys. Thanks for taking my questions. I just wanted to go back to the comments you made around implementations maybe kind of taking a little bit longer and going into 2027. Just wondering if you can give a little bit more color on what might be driving that.

Well, I think the good news that's driving it is volume. There's lots of them. It's a good problem to have, and we're obviously working on ways to accelerate that and speed that up. But I think that's the only driver of it is that we've got a lot of goal lives. We've got a lot of business. It's a good problem to have, and we'll figure out a way to revenue faster and automate as much as we can around the implementation and onboarding process.

Got it. That's helpful. And then just a quick follow-up going back to capital allocation around the debt prepayment levels. It's good to see the off-size prepayment that you guys announced. I'm just wondering if, you know, I know these things can be a little bit fluid, but if, you know, you talked about in your guidance commentary around it, you know, trying to make it consistent, you would be towards the higher end of the guide. Could that potentially be indicative of a continued elevated level of debt prepayment going forward?

Yes, Jon, I think the good news is we've got a lot of free cash flow and you have the ability to be opportunistic and flexible with our approach. So certainly, you know, if interest rates, you know, trend higher and stock price stays higher, you know, we will obviously probably lean more towards that free payment. But, you know, we'll keep our options open as it comes around. But You know, we are generating really good free cash flow, and as revenue ramps up, it continues to stay strong. You know, our margins stay strong. We've curtailed a lot of the acquisition expenses. So we've seen a lot of that cash flow right to the bank account, and then at the end of the quarter, you know, we'll make sure that we have a balanced approach in what to do with it.

Great. Thank you. Thank you. We'll go next now to Kyle Peterson of Needham.

Great. Good morning, and thanks for squeezing me in. Just one quick follow-up for me on the capital allocation discussion, particularly as it relates to M&A here. It sounds like you guys are getting towards the finish line of at least actioning out a lot of the synergies with Sterling, and that's been a really successful transaction for you guys. So I just wanted to see, sometime like next year, would you guys be Open to going back in the market with the balance sheet and the synergies actioned in a good spot or I guess do you guys feel that you largely have everything you guys need from like a capability and platform perspective? Just any more color on how that could potentially fit in the strategy once all of the synergies have been actioned would be really helpful.

Yeah, Kyle, that's a good question. And I'll kind of go back to the last question. We've got the luxury of having good cash flow, and I'll let Scott write some comments here in a second. But the good news is, for now, our focus is taking that cash flow and getting our leverage where it needs to be, being opportunistic if the market creates the right opportunity to buy back shares at a very appreciative amount of the percentage. You know, as we shared at our investor day last year, you know, once our leverage range becomes down, we've got to have a little bit of a wider playbook. Certainly over the short term, you know, our focus is, you know, maximizing shareholder returns, getting leverage down to where it needs to be. I'll let Scott chime in a little bit, you know, on where he feels we are from a capability standpoint, but certainly on the short term, that's kind of our core focus is probably going to be on one of those two assets.

Kyle, I would just add, and Steven's spot on, first, let's pivot back to the 2028 Investor Day financials that we put out there. and we put out their revenue ranges of 1.8 to 2.0 billion, 560 to 630 million as EBITDA, 31 to 32% as EBITDA margin, $1.65 to $2 as EPS. Those are phenomenal numbers and we feel we're on a path to achieve those numbers without any M&A. So that's the good news is that we don't feel like we need help M&A wise to achieve anything that we want to achieve and we love the results that we announced today and the guidance that we've given today puts us on the path to achieving those numbers. I will say though that we'll always be opportunistic about M&A. If something falls in our lap, if something that looks appealing becomes available I think it would You know, knowing how good our sales team is and the 80,000 customers we have, if we could add on something that would give us more to sell to same buyer, and it's more of like a plug-on or a plug-in, that makes a lot of sense for us. Now, financially, we're not even looking because we're clearly focused on the leveraging. But as we get into 2027 and certainly into 2028, I think we'll be opportunistic. I'm not sure we'll be hunting for stuff, but if something becomes available, we'll take a look. We're just laser focused on delivering those 2028 investor day numbers that we had given and we don't need M&A to get there. Understood. Thank you. Nice quarter.

Thank you, ladies and gentlemen. That will bring us to the conclusion of our question and answer session. and also bring us to the conclusion of today's conference call. We'd like to thank you all so much for joining the First Advantage second quarter 2026 earnings conference call and a webcast. And again, thank you for joining us and have a great day. Goodbye.